Overseas Shipholding announces IRS deal, competing plan term sheets

By Jim Witters and Caroline Salls

Wilmington, Del., Dec. 19 - Overseas Shipholding Group, Inc. has reached agreement in principle on a settlement with the Internal Revenue Service that an attorney called "monumental" during a Dec. 19 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The hearing also included discussion of competing term sheets for a plan of reorganization, the approval of two settlements and a hard-won extension of exclusivity through Feb. 28.

Debtors attorney Luke A. Barefoot said the IRS has agreed on a model for the adjustment of taxes for the years 2010 through 2012.

Coupled with a previous adjustment for years 2003 through 2009, the $470 million IRS claim that helped push Overseas Shipholding into bankruptcy should be reduced to $256 million, Barefoot told the court.

The debtors plan to file a form 8-K with the Securities and Exchange Commission as soon as the agreement is finalized, he said.

According to an 8-K filed Thursday, the IRS filed a $264.28 million priority claim against Overseas for corporate income tax and interest for the years 2004, 2005, 2009, 2010 and 2011.

The company said this claim amends an original $463.01 million claim.

On Dec. 19, the IRS also filed an amended $1,659,739 administrative claim against Overseas for corporate income tax, interest and penalties for 2012. This amends an initial $1,654,764 claim.

Competing term sheets

Both the official committee of unsecured creditors and an informal group of noteholders have submitted term sheets to the debtors that could result in a Chapter 11 plan of reorganization.

Both term sheets are confidential, but some information was shared during the hearing.

All parties agreed that the noteholders' proposal would result in better recoveries for all creditors. But the creditors committee questioned whether the noteholders' plan can reach fruition.

The debtors are working with the noteholders to obtain exit financing to make that plan work, Barefoot said.

And Overseas sought an extension through Feb. 28 of its exclusive periods for filing a Chapter 11 plan.

The noteholder term sheet includes new equity, a separating of the domestic and international businesses, Barefoot said.

Dennis F. Dunne, representing U.S. Bank, NA, called the noteholder plan "more questions than commitments."

U.S. Bank has been working with the creditors committee on its term sheet "and we are very close," Dunne said.

While not objecting to the extension of exclusivity, the creditors' committee sought to set Jan. 31 as the termination date.

Committee attorney Fred S. Hodara said the noteholders have been shopping for financing for two months, and the Jan. 31 date would give them 45 more days to obtain commitments.

He suggested that the debtors allow a dual-track process.

If the noteholder exit financing materializes, all efforts could "toggle over" to support for that plan, he said. But the debtors should plan for the possibility that the noteholder financing will not come through.

Hodara said each plan requires exit financing, but the committee's plan requires far less than the noteholders' plan.

Barefoot said competing plans "would create chaos" and hinder efforts to garner creditor consensus.

Judge Peter J. Walsh granted the exclusivity extension through Feb. 28 from Nov. 30. But he also ordered that any further requests for extension be filed by Feb. 21, with a hearing scheduled for March 7.

The exclusive period for soliciting acceptances of the plan was extended through April 29, from Jan. 31.

The intent of the ruling was to prevent the debtors from taking advantage of the local rules in Delaware that automatically extend exclusivity through the date of a hearing on the debtors' request.

Settlements approved

Judge Walsh also approved stipulations resolving certain general unsecured claims held by Jefferies Leveraged Credit Products, LLC against the company and certain of its affiliates.

The affiliates include Carina Tanker Corp., Concept Tanker Corp., Urban Tanker Corp., View Tanker Corp. and Rich Tanker Corp.

The stipulation provides for the Carina claims to be allowed as general unsecured nonpriority claims in the reduced amount of $4.1 million.

Also, the Concept claims will be reduced to about $2.7 million, the Urban claims will be reduced to about $4.9 million, the View claims will be reduced to about $3.9 million and the Rich claims will be reduced to $2.9 million.

The court also approved the general unsecured claims of Citigroup Financial Products Inc., DHT Holdings, Inc., Ann Tanker Corp., Chris Tanker Corp., Ania Aframax Corp., Cathy Tanker Corp., Regal Unity Tanker Corp. and Rebecca Tanker Corp.

Debtors attorney Philip A. Cantwell said those settlements and an agreement in principle with Deutsche Bank leave only two vessel rejection claims unsettled.

But those two remaining claims are the largest and most complex of the seven vessel rejection claims in the case, he said.

Barefoot said the debtors are trying to determine whether those two vessels will be part of the reorganized business moving forward or will be turned over to the secured lenders as partial settlement of their claims.

Overseas Shipholding, a New York-based tanker company, filed for bankruptcy on Nov. 14, 2012. The Chapter 11 case number is 12-20000.

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